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U.S. BUSINESS
FOOD
Behind the Boycotts:
Why Prices are High
Supermarket boycotts spread like butter on a sizzling griddle last week. Encouraged by reports that several shopping-cart blockades the week before had
forced the great chains to lower some
prices, housewives marched in more
than 100 cities. Placard-waving pickets
popped up in places as disparate as
Pittsburgh and Cedar Rapids, Iowa,
Washington, D.C. and Lubbock, Texas.
Esther Peterson, the former Utah
schoolteacher who is the President's
special assistant for consumer affairs,
egged on a band of New York City
Association of Food Chains last week, I
Boston Supermarket Executive Gordon
F. Bloom said: "American consumers
have grown accustomed to low food
prices based on surpluses that are no
longer with us. The honeymoon is over."
Grain shortages have increased the
price of flour; consequently, bread prices have risen 7.5% since January. The
steep price of feed grains for livestock
has also contributed to an appreciable
increase in meat prices. At the same
time, ranchers have stepped up their
slaughter of dairy cattle—to reduce feed
expenses, take advantage of high meat
prices—with the result that milk prices
are up 7.9% this year.
Government policy is also a primary
ing. From 1955 to 1965, wages went up
46%, but retail food prices rose less
than 14%. Yet supermarket operators
admit that they could do considerably
more to reduce costs through automation. Across the typical checkout counter run 22 tons of merchandise a week—
all of it totted up and packed by hand.
Says George W. Jenkins, president of
Florida-based Publix Super Markets:
"Many repetitive supermarket activities
are readymade for mechanical and electronic assistance."
Housewives' Target. The boycotting
housewives had little interest in the
complexities of economics or electronics, but they concentrated much of their
ire on a most visible target: supermar-
PETERSON & DENVER BOYCOTTER
It may be small comfort, but food still costs less in the U.S. than elsewhere.
PROTESTERS IN MIAMI
demonstrators, urging them to "vote
with the dollar."
The Federal Trade Commission promised to investigate whether supermarket
promotional games inflate food tags. All
this gave the impression that food prices
have climbed 4% in the past twelve
months simply because the supermarkets
are grossly profit hungry. The retailers
do share some of the blame. But they
constitute just one element in a complex mixture of ingredients—including
Government policies and rising wages
—that make up food cost.
Dwindling Surpluses. The major reason for the price rise is the startling
decline in U.S. farm surpluses. Because
of Government crop controls and the
increasing size of foreign-aid shipments
of food to famine-threatened nations,
the wheat surplus has dropped since
1963 from 32.5 million to 15.2 million
metric tons, is now below the minimum
needed as insurance against domestic
crop failure. In addition, bad weather
reduced this year's harvest. Speaking at
the Miami convention of the National
cause of the 10% rise in fruit and vegetable prices this year. Pressured by labor unions, the Government last January reduced the inflow of low-wage
Mexican braceros who work in U.S.
fields and orchards. Thus farmers had to
hire domestic field hands, who demand
higher wages and are reluctant to do
such backbreaking "stoop labor."
Chain Reaction. The Government estimates that of every dollar spent for
food, roughly 390 goes to the farmer,
400 to the wholesaler and distributor,
and only 210 to the retailer. Supermarket executives point out that their industry's profit margin after taxes has
scarcely changed since 1960, runs a
modest 1.3% of sales. But that widely used, poor-mouthing figure does not
sum up the whole situation. By the
more incisive measure of profit on
invested capital, supermarkets earn
11.5%, almost exactly as much as the
average for all U.S. manufacturing.
Though the big stores have slashed
the costs of food distribution in half
since the 1930s, other expenses are ris-
ket games. The cost of such come-ons
as Bonus Bingo, Pot-O-Gold and Let's
Go to the Races amounts to approximately two-thirds of 1% of supermarket sales—half as much as the profit
margin for the industry. The marketers
rationalize that the games are an expensive promotional nuisance, but that
Mrs. America is attracted by them
despite her protests. Said Clarence G.
Adamy, president of the National Association of Food Chains, at the Miami
convention: "There is not a retailer
here who likes the games or stamps."
Chances are that in most cases the
games will stay, the boycotts will fade,
and prices will drift upward. It may be
small comfort to the housewives, but
food still costs less in the U.S. than in
many other countries: in West German
supermarkets, steak goes for $2.25 a
lb.; in Britain, string beans now command 600 a lb. Most important, Americans spend only 18% of their after-tax
income for food, while Europeans—
who have far fewer convenience foods
—spend from 29% to 45% .
TIMF. NOVEMBER 1966
89

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Transcript

U.S. BUSINESS
FOOD
Behind the Boycotts:
Why Prices are High
Supermarket boycotts spread like butter on a sizzling griddle last week. Encouraged by reports that several shopping-cart blockades the week before had
forced the great chains to lower some
prices, housewives marched in more
than 100 cities. Placard-waving pickets
popped up in places as disparate as
Pittsburgh and Cedar Rapids, Iowa,
Washington, D.C. and Lubbock, Texas.
Esther Peterson, the former Utah
schoolteacher who is the President's
special assistant for consumer affairs,
egged on a band of New York City
Association of Food Chains last week, I
Boston Supermarket Executive Gordon
F. Bloom said: "American consumers
have grown accustomed to low food
prices based on surpluses that are no
longer with us. The honeymoon is over."
Grain shortages have increased the
price of flour; consequently, bread prices have risen 7.5% since January. The
steep price of feed grains for livestock
has also contributed to an appreciable
increase in meat prices. At the same
time, ranchers have stepped up their
slaughter of dairy cattle—to reduce feed
expenses, take advantage of high meat
prices—with the result that milk prices
are up 7.9% this year.
Government policy is also a primary
ing. From 1955 to 1965, wages went up
46%, but retail food prices rose less
than 14%. Yet supermarket operators
admit that they could do considerably
more to reduce costs through automation. Across the typical checkout counter run 22 tons of merchandise a week—
all of it totted up and packed by hand.
Says George W. Jenkins, president of
Florida-based Publix Super Markets:
"Many repetitive supermarket activities
are readymade for mechanical and electronic assistance."
Housewives' Target. The boycotting
housewives had little interest in the
complexities of economics or electronics, but they concentrated much of their
ire on a most visible target: supermar-
PETERSON & DENVER BOYCOTTER
It may be small comfort, but food still costs less in the U.S. than elsewhere.
PROTESTERS IN MIAMI
demonstrators, urging them to "vote
with the dollar."
The Federal Trade Commission promised to investigate whether supermarket
promotional games inflate food tags. All
this gave the impression that food prices
have climbed 4% in the past twelve
months simply because the supermarkets
are grossly profit hungry. The retailers
do share some of the blame. But they
constitute just one element in a complex mixture of ingredients—including
Government policies and rising wages
—that make up food cost.
Dwindling Surpluses. The major reason for the price rise is the startling
decline in U.S. farm surpluses. Because
of Government crop controls and the
increasing size of foreign-aid shipments
of food to famine-threatened nations,
the wheat surplus has dropped since
1963 from 32.5 million to 15.2 million
metric tons, is now below the minimum
needed as insurance against domestic
crop failure. In addition, bad weather
reduced this year's harvest. Speaking at
the Miami convention of the National
cause of the 10% rise in fruit and vegetable prices this year. Pressured by labor unions, the Government last January reduced the inflow of low-wage
Mexican braceros who work in U.S.
fields and orchards. Thus farmers had to
hire domestic field hands, who demand
higher wages and are reluctant to do
such backbreaking "stoop labor."
Chain Reaction. The Government estimates that of every dollar spent for
food, roughly 390 goes to the farmer,
400 to the wholesaler and distributor,
and only 210 to the retailer. Supermarket executives point out that their industry's profit margin after taxes has
scarcely changed since 1960, runs a
modest 1.3% of sales. But that widely used, poor-mouthing figure does not
sum up the whole situation. By the
more incisive measure of profit on
invested capital, supermarkets earn
11.5%, almost exactly as much as the
average for all U.S. manufacturing.
Though the big stores have slashed
the costs of food distribution in half
since the 1930s, other expenses are ris-
ket games. The cost of such come-ons
as Bonus Bingo, Pot-O-Gold and Let's
Go to the Races amounts to approximately two-thirds of 1% of supermarket sales—half as much as the profit
margin for the industry. The marketers
rationalize that the games are an expensive promotional nuisance, but that
Mrs. America is attracted by them
despite her protests. Said Clarence G.
Adamy, president of the National Association of Food Chains, at the Miami
convention: "There is not a retailer
here who likes the games or stamps."
Chances are that in most cases the
games will stay, the boycotts will fade,
and prices will drift upward. It may be
small comfort to the housewives, but
food still costs less in the U.S. than in
many other countries: in West German
supermarkets, steak goes for $2.25 a
lb.; in Britain, string beans now command 600 a lb. Most important, Americans spend only 18% of their after-tax
income for food, while Europeans—
who have far fewer convenience foods
—spend from 29% to 45% .
TIMF. NOVEMBER 1966
89